People Patterns uses Behavioural Economics as a new source of advantage for innovative businesses. Email me bri@peoplepatterns.com.au to unlock the secrets of consumer behaviour for your business or follow the latest on Twitter @peoplepatterns.

Tuesday, February 28, 2012

A cafe in Melbourne has been carving out niche in a very competitive market by offering the choice of only black, white or filter coffee. No cappuccino, latte or other variant, they have adopted the findings of behavioural studies where less has proven to be more when it comes to a consumer making a decision to purchase. From ordering a coffee to selecting a jar of jam or superannuation policy, customers are better at taking action when they have fewer choices. So how do you as a business balance having a sufficient range of products to attract customers who haven't decided what they want with not overwhelming them with the choices you offer? In other words, how do you give them freedom to choose without paralysing their choice?

The Jam study
Cited in nearly every book about choice and consumer decision making is a 2000 study by Iyengar and Lepper called "When Choice is Demotivating: Can One Desire Too Much of a Good Thing?" where they tested the purchase rates of a jam tasting booth. When 24 jams were offered, 6/10 people stopped to taste compared with only 4/10 when only 6 jams were available. However, where 30% of people who tasted from the six jams went on to purchase, only 3% of the tasters from the wider choice did so. Why? It became too hard to decide which jam to buy, so they didn't buy any! Behaviourally, the customers became concerned that a choice of one jam would cause them regret that they didn't choose another, and the vast number of options meant that their odds of "getting it right" (ie having a regret-free purchase) were extremely limited.

Your Customer's need state
Customers in 'tyre-kicking' mode, where they are seeking information but have not reached a decision are the ones who want maximum choice. They're in research-mode, so want to taste 24 jams.

Customers in ready-to-buy mode want to narrow their options and feel in control of their choice. They're in buy-mode and want to select from 6 jams.

So when someone walks into your store of visits your website, how do you know their need state and how many jams to present?

I think there are three areas to consider; reducing your range, asking your customer and chunking the choices down.

1. Reducing your range
Like the Melbourne cafe, you can make a smaller range one of your business differentiators. In many ways, Apple has done this by keeping their range tight. Of course the risk with a limited range is that your appeal may be niche rather than broad, but if you celebrate rather than apologise for this, it can certainly work. A word of warming, look out for product-creep if this is your business model where the extensions to your range end up confusing the market about what you do. Starbucks in the US fell into this trap by stepping too far away from just making coffee.

2. Asking your customer if they are ready to buy or want to learn more
In a face-to-face situation, you can ask questions to understand which need state they are in. You can then refine the 24 jams to 6 through your sales process.

Online, you can create pathways on your site to direct customers to what they need. "Ready to buy" vs "Learn more" has been used on many sites to guide the customer to what they need.

3. Chunking the choices down
I think the most pragmatic option is chunking. Chunking down choices by categorising your goods is the key to both generating the interest amongst your target market and converting to sales. But every shop does this to a greater or lesser degree, right? It's called visual merchandising.

Remember though, the primary aim of the chunking should be to eliminate any anticipated regret your customer may have in choosing one product over another, so grouping your goods so that undesirable options can be discarded from consideration very quickly.

In store chunking
For your customer, the benefit of in-store shopping is that they can see the scale and range by scanning the room. The risk is that they become overwhelmed. In the jam example, all the jams were jammed in together (pun intended), with similar labels and packaging. Yes, it meant customers could find where the jams were in the store, but once in front of the wall-of-jam, they couldn't eliminate the ones they didn't like. I find the toothpaste aisle like this too.

In store, you are best to leave visual space between different groups within a category.

Fast food restaurants chunk a vast number of menu items into categories like combo meals, chicken, beef and so on by presenting them in sections on the menu board.

In the jam example, the tasting booth could have all 24 jams lined up but chunked into sub category (red, black, orange). These same categories could then have been represented in the aisle with each category of jam presented with strongly differentiated colour labels to make them easy to spot.

Online chunking
In an online space, you have more options about how you chunk choices but beware, this can create an overwhelming choice of chunks! The most effective way of influencing the choice your customer will take is by cueing which option has been the most popular. Why? Because when in doubt, people tend to follow what others have done (behaviourally known as herding). Contrast these examples from Optus, which helpfully includes a "best seller" label and Telstra, which ineffectively chunks by technology type.

Optus mobile options

Telstra mobile options

Balancing freedom to choose with making a choice
Every business would love to only carry products that people buy (a.k.a. inventory nirvana). Realistically, we have to make decisions about which products people are most likely to buy and to help them make the choice to do so. The key message is that providing more choice is unlikely to generate more value for your business, and rather than spending time expanding options for your customers, you are better directing your energy towards helping them have a regret-free experience. Happy choosing.

Friday, February 24, 2012

This post contains a summary of tweets noted in the past week that mentioned behavioural/behavioral economics. Where possible, re-tweets have and tweets without links been removed to condense the list.

This week I am pleased to say my piece on the behavioural economics of LinkedIn was well received as was Liberty Forum's Free to Err.

About Me

Hi! I'm Bri Williams and I run People Patterns, a consultancy specialising in buyer behaviour. I deliver benefits to you by tweaking the interactions you have with your buyers through the application of behavioural science. A marketer and consumer behaviouralist, I've worked across industries for over 15 years, am a specialist contributor to Smartcompany.com.au, facilitator, speaker and author. Contact me at bri@peoplepatterns.com.au to find out how to get your buyers to buy more.

Services available from People Patterns

People Patterns is about businesses getting their buyers to buy more through the application of proven techniques from behavioural sciences such as behavioural economics. By knowing the patterns, you can take the guess work out. Thin of it like "Magician's Secrets finally revealed", but for buyer behaviour!

Contact me via bri@peoplepatterns.com.au or 0408 392 173 to find out about what a difference this new perspective can bring. An obligation free chat could be the best thing you do for your business this year!